U.S. stocks fell, after a two-week rally, as Moody’s Investors Service and Fitch Ratings said last week’s summit did little to ease pressure on Europe’s struggling governments and Intel Corp. (INTC) cut its revenue forecast.
Financial shares had the biggest decline among 10 groups in the Standard & Poor’s 500 Index as Morgan Stanley and Citigroup Inc. (C) sank more than 5.3 percent. Intel dropped 4 percent as the world’s largest chipmaker said a shortage of hard-disk drives was causing computer makers to reduce orders of other parts. Alpha Natural Resources Inc. tumbled 8.8 percent, while Halliburton Co. (HAL), Alcoa Inc. (AA) and Newmont Mining Corp. (NEM) decreased more than 2.4 percent as commodities slumped.
The S&P 500 declined 1.5 percent to 1,236.47 at 4 p.m. New York time, after rising 8.3 percent over the previous two weeks. The Dow Jones Industrial Average fell 162.87 points, or 1.3 percent, to 12,021.39. About 6.5 billion shares changed hands on U.S. exchanges, or 19 percent below the three-month average.
“This is not heaven,” Stanley Nabi, New York-based vice chairman of Silvercrest Asset Management Group, which oversees $10.5 billion, said in a telephone interview. “The European stopgap may not be successfully implemented. In order for this program to be successful, there’s going to have to be a lot of belt tightening. That means that the European economy is not going to do well at all. That would have negative impact on other countries around the globe.”
Stocks rose last week as European leaders agreed to boost a rescue fund and reports spurred optimism about the U.S. economy. Today, equities joined a global slump as Moody’s said that last week’s EU summit failed to produce “decisive policy measures.” Fitch said a comprehensive solution has not yet been offered and predicted a “significant economic downturn” in the region.
“Did the European summit do enough to stave off these downgrades or not?” Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, which oversees more than $39 billion, said in a telephone interview. “Most people come to the conclusion that downgrades on the region’s sovereigns are easily justifiable. If the rest of the world is slowing down, we too would feel some of that impact.”
All 10 groups in the S&P 500 today fell as financial, commodity, industrial and technology gauges slid at least 1.5 percent. The Morgan Stanley (MS) Cyclical Index slumped 1.9 percent amid concern about a global economic slowdown.
The KBW Bank Index declined 2.5 percent as 23 of its 24 stocks fell. A gauge of European lenders in the benchmark Stoxx Europe 600 Index declined 3.9 percent. Morgan Stanley slid 6.1 percent to $15.38. Citigroup decreased 5.4 percent to $27.22. Bank of America Corp. (BAC) lost 4.7 percent, the most in the Dow, to $5.45. JPMorgan Chase & Co. (JPM) erased 3.4 percent to $32.04.
Intel tumbled 4 percent, the biggest decline since Aug. 18, to $24. While PC sales will rise in the fourth quarter from the previous three months, customers are cutting back on their stockpiles of parts because they expect hard-disk shortages to reduce output, Intel said. Those shortages, resulting from the worst flooding in Thailand in 70 years, will continue into the first quarter, it said.
Energy and raw material shares slumped as commodities retreated amid concern about slower global demand and as the U.S. dollar rose. The Market Vectors-Coal ETF (KOL), an exchange- traded fund, tumbled 4.2 percent.
Alpha Natural Resources Inc. (ANR), a coal producer, sank 8.8 percent to $21.39. Halliburton, an oilfield services provider, fell 4.5 percent to $32.56. Alcoa, the largest U.S. aluminum producer, sank 3 percent to $9.35. Newmont Mining, the largest U.S. gold producer, slid 2.5 percent to $65.27.
Salesforce, Pfizer, Boeing
Salesforce.com Inc. (CRM) tumbled 6.3 percent to $116.07. The largest maker of online customer-management software was cut to “underperform” from “neutral” at Cowen and Company LLC.
Two of the world’s biggest companies fell even after boosting their dividends. Pfizer Inc. (PFE), the largest drugmaker, authorized a new share buyback program for as much as $10 billion and said the quarterly dividend was increased to 22 cents a share from 20 cents. Boeing Co. (BA) raised its quarterly dividend 4.8 percent to 44 cents a share, the first increase since 2008 at the world’s largest aerospace company. A Bloomberg projection called for a new total of 45 cents.
Pfizer dropped 0.8 percent to $20.39. Boeing retreated 1.4 percent to $70.90.
Thomas Lee, chief U.S. equity strategist at JPMorgan, estimated the S&P 500 (SPX) will rally to 1,430 next year and recommended financial stocks. Lee’s forecast is 14 percent higher than the last closing level on Dec. 9. He estimated combined profit by companies in the benchmark equity gauge will be $105 a share in 2012 and $110 in 2013.
“The consensus view is that visibility remains murky and with significant tail risks” such as Europe’s debt crisis and fiscal tightening in China, Lee said. “2012 may look a bit like 2009,” he wrote. “Emergence from a financial crisis and the potential for acceleration of the business cycle driven by Europe exiting a recession and China easing” may boost cyclical stocks. Financials, which may be helped by Republican gains in the U.S. election, are his “top pick,” he said.
Financials have plunged 21 percent in 2011, the most of the 10 groups in the S&P 500 (SPXL1), as investors fled banks and insurers on concern Europe’s debt crisis will spread. Raw-material and industrial shares had the next biggest declines, falling 13 percent and 5 percent, respectively.
From the S&P 500’s bear-market bottom on March 9, 2009, through the end of that year, financials surged 131 percent, while consumer discretionary, industrial and raw-material companies jumped at least 83 percent.
Unemployment at the lowest level in more than two years and manufacturing running at the fastest pace in five months may dissuade Federal Reserve Chairman Ben S. Bernanke and fellow central bankers from pursuing a third-round of large scale asset purchases. The Federal Open Market Committee will issue a statement after its meeting tomorrow with any updated outlook.
Vulcan Materials Co. (VMC) surged 15 percent, the biggest gain in the S&P 500, to $38.70. Martin Marietta Materials Inc. is seeking a hostile takeover of Vulcan in an all-stock transaction valued at $4.7 billion that would create the world’s largest aggregates supplier.
Monster Worldwide Inc. (MWW) added 1 percent to $8.05. The company, which has been the subject of at least 20 takeover rumors in the past five years, may finally be cheap enough to lure a private equity buyer, according to a Bloomberg News report.
The world’s largest online-recruiting company has plunged 66 percent this year, the most in the S&P 500, as American businesses remained reluctant to hire. New York-based Monster is now trading at a 7 percent discount to sales, cheaper than 90 percent of U.S. Internet software and services companies, according to data compiled by Bloomberg. It’s also generating twice as much cash relative to its share price as the industry median, the data show.
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